ARTHUR J. GALLAGHER & CO. ROLLING MEADOWS, IL, April 27, 2017 - Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended March 31, 2017. Management will host a webcast conference call to discuss these results on Friday, April 28, 2017 at 9:00 a.m. ET/8:00 a.m. CT. To listen to the call, and for printer-friendly formats of this release and the "Supplemental Quarterly Data" and "CFO Commentary," which may also be referenced during the call, please visit ajg.com/IR. These documents contain both GAAP and non-GAAP measures. Investors and other users of this information should read carefully the section entitled "Information Regarding Non-GAAP Measures" beginning on page 7.
Summary of Financial Results - First Quarter Reconciliations of non-GAAP measures begin on page 2(Dollars in millions, except per share data)
1st Q 2017 1st Q 2016 Changerokerage Segment | Reported GAAP | Adjusted Non-GAAP | Reported GAAP | Adjusted Non-GAAP | Reported GAAP | Adjusted Non-GAAP |
Revenues | $ 878.5 | $ 877.1 | $ 825.5 | $ 809.1 | 6% | 8% |
Organic revenues Net earnings | $ 78.1 | $ 815.7 | $ 65.9 | $ 794.0 | 19% | 2.7% |
Net earnings margin Adjusted EBITDAC | 8.9% | $ 215.7 | 8.0% | $ 189.2 | +91 bpts | 14% |
Adjusted EBITDAC margin | 24.6% | 23.4% | +121 bpts | |||
Diluted net earnings per share | $ 0.40 | $ 0.46 | $ 0.35 | $ 0.40 | 14% | 15% |
B
Risk Management Segment
Revenues | $ 182.6 | $ 182.6 | $ 179.3 | $ 179.8 | 2% | 2% |
Organic revenues | $ 182.5 | $ 179.6 | 1.6% | |||
Net earnings | $ 14.3 | $ 15.0 | -5% | |||
Net earnings margin Adjusted EBITDAC | 7.8% | $ 31.2 | 8.4% | $ 32.0 | -54 bpts | -3% |
Adjusted EBITDAC margin | 17.1% | 17.8% | -71 bpts | |||
Diluted net earnings per share | $ 0.08 | $ 0.08 | $ 0.08 | $ 0.09 | 0% | -11% |
Corporate Segm ent
Diluted net earnings (loss) per share
Total Company
Diluted net earnings per share
$ (0.17) $
$ 0.31 $
(0.14) $
0.40 $
(0.17) $
0.26 $
(0.15)
0.34
0% 7%
19% 18%
"We had an excellent start to 2017. Coming off a terrific 2016, we delivered solid organic growth, outstanding revenue growth from our tuck-in M&A strategy and strong margin expansion in the first quarter," said J. Patrick Gallagher, Jr., Chairman, President and CEO. "Our unique culture is thriving around the world, demonstrated by being selected as a World's Most Ethical Company for the sixth year in a row by the Ethisphere Institute. Our global businesses are working well together, the team is energized and we are successfully executing our strategies. We are well positioned for the remainder of 2017."
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Quarter Ended March 31 Reported GAAP to | Adjusted Non-GAAP Reconciliation: | Diluted Net | |
Segment | Revenues Net Earnings 1st Q 17 1st Q 16 1st Q 17 1st Q 16 | EBITDAC 1st Q 17 1st Q 16 | Earnings Per Share 1st Q 17 1st Q 16 |
(in millions) (in millions) | (in millions) | ||
Brokerage, as reported | $ 878.5 $ 825.5 $ 78.1 $ 65.9 | $ 208.0 $ 176.8 | $ 0.40 $ 0.35 |
Gains on book sales | (1.4) (2.2) (1.0) (1.5) | (1.4) (2.2) | - (0.01) |
Acquisition integration | - - 2.0 10.0 | 2.9 14.2 | 0.01 0.06 |
Workforce & lease termination | - - 2.7 1.1 | 3.9 1.6 | 0.02 - |
Acquisition related adjustments | - - 6.2 0.3 | 2.3 0.8 | 0.03 - |
Levelized foreign currency translation | - (14.2) - (0.6) | - (2.0) | - - |
Brokerage, as adjusted * | 877.1 809.1 88.0 75.2 | 215.7 189.2 | 0.46 0.40 |
Risk Management, as reported | 182.6 179.3 14.3 15.0 | 31.0 31.0 | 0.08 0.08 |
Workforce & lease termination | - - 0.1 0.3 | 0.2 0.5 | - 0.01 |
Levelized foreign currency translation | - 0.5 - 0.3 | - 0.5 | - - |
Risk Management, as adjusted * | 182.6 179.8 14.4 15.6 | 31.2 32.0 | 0.08 0.09 |
Corporate, as reported | 351.6 295.6 (24.6) (23.0) | (51.2) (38.4) | (0.17) (0.17) |
Litigation settlement | - - 4.4 3.7 | 5.5 4.7 | 0.02 0.02 |
Home office lease termination/move | - - 2.4 - | 4.0 - | 0.01 - |
Corporate, as adjusted * | 351.6 295.6 (17.8) (19.3) | (41.7) (33.7) | (0.14) (0.15) |
Total Company, as reported | $ 1,412.7 $ 1,300.4 $ 67.8 $ 57.9 | $ 187.8 $ 169.4 | $ 0.31 $ 0.26 |
Total Company, as adjusted * | $ 1,411.3 $ 1,284.5 $ 84.6 $ 71.5 | $ 205.2 $ 187.5 | $ 0.40 $ 0.34 |
Total Brokerage & Risk Management, as reported | $ 1,061.1 $ 1,004.8 $ 92.4 $ 80.9 | $ 239.0 $ 207.8 | $ 0.48 $ 0.43 |
$ 1,059.7 $
988.9
$ 102.4 $
90.8
$ 246.9 $
221.2
$ 0.54 $
0.49
* For 2017, the pretax impact of the Brokerage Segment adjustments totals $14.4 million, with a corresponding adjustment to the provision for income taxes of $4.5 million relating to these items. The pretax impact of the Risk Management Segment adjustments totals $0.2 million, with a corresponding adjustment to the provision for income taxes of $0.1 million relating to these items. The pretax impact of the Corporate Segment adjustments totals $9.5 million, with a corresponding adjustment to the provision for income taxes of $2.7 million relating to these items. A detailed reconciliation of the 2017 and 2016 provision for income taxes is shown on page 12.
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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):Or ganic Revenues (Non-GAAP) 1st Q 17 1st Q 16 Change Base Commissions and Fees
Commissions and fees, as reported$ 778.5
$ 725.1
7.4%
Less commissions and fees from acquisitions (47.0) - Less disposed of operations - (1.4)
Levelized foreign currency translation - (12.9)
Organic base commissions and fees$ 731.5
$ 710.8
2.9%
Supple mental Commissions Supplemental commissions, as reported
$ 34.5
$ 32.9
4.9%
Less supplemental commissions from acquisitions (1.2) -
Less disposed of operations - (0.1)
Levelized foreign currency translation - (1.4)
Organic supplemental commissionsContingent Commis sions
Contingent commissions, as reported$ 33.3
$ 53.4
$ 31.4
$ 55.2
6.1%
-3.3%
Less contingent commissions from acquisitions (2.5) -
Less disposed of operations - (2.8)
Levelized foreign currency translation - (0.6)
Organic contingent commissions$ 50.9
$ 51.8
-1.7%
Total reported commissions, fees, supplemental commissions and contingent commissions$ 866.4
$ 813.2
6.5%
Less commissions and fees from acquisitions (50.7) -
Less disposed of operations - (4.3)
Levelized foreign currency translation - (14.9)
Total organic commissions, fees, supplemental commissions and contingent commissions$ 815.7
$ 794.0
2.7%
Our domestic and international operations both posted growth similar to the 2.9% growth in organic commission and fee revenues for first quarter 2017.
Acquisition Activity 1st Q 17 1st Q 16Number of acquisitions closed * 12 8
Estimated annualized revenues acquired (in millions)
$ 62.5 $
30.0
* Gallagher issued 259,000 shares in connection with tax-free exchange acquisitions in first quarter 2017, which had been pre-purchased in mid-2016.
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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (continued):Compensation Expense and Ratios 1st Q 17 1st Q 16
Compensation expense, as reported$ 525.5
$ 492.9
Acquisition integration (1) (1.1) (4.6)
Workforce and lease termination related charges (3.5) (1.3)
Acquisition related adjustments (2.3) (0.8)
Levelized foreign currency translation - (10.0)
Compensation expense, as adjusted$ 518.6
$ 476.2
Reported compensation expense ratios using reported revenues on page 2 * 59.8% 59.7%
Adjusted compensation expense ratios using adjusted revenues on page 2 * 59.1% 58.9%
* Reported first quarter compensation ratio was 0.1 pts higher than the same period in 2016. Adjusted first quarter compensation ratio was 0.2 pts higher than the same period in 2016. Both ratios were primarily impacted by an increase in stock compensation costs related to the increase in our stock price, partially offset by savings in employee benefits.
Operating Expe ns e and Ratios 1st Q 17 1st Q 16
Operating expense, as reported$ 145.0
$ 155.8
Acquisition integration (1) (1.8) (9.6)
Workforce and lease termination related charges (0.4) (0.3)
Levelized foreign currency translation - (2.2)
Operating expense, as adjusted$ 142.8
$ 143.7
Reported operating expense ratios using reported revenues on page 2 * 16.5% 18.9%
Adjusted operating expense ratios using adjusted revenues on page 2 ** 16.3% 17.8%
* Reported first quarter operating expense ratio was 2.4 pts lower than the same period in 2016. This ratio was primarily impacted by lesser integration costs such as technology and lease termination charges, and business insurance.
** Adjusted first quarter operating expense ratio was 1.5 pts lower than the same period in 2016. This ratio was primarily impacted by savings in real estate, business insurance and office supplies.
Ne t Earnings to Adjusted EBITDAC (Non-GAAP) 1st Q 17 1st Q 16 Change
Net earnings, as reported$ 78.1
$ 65.9
18.5%
Provision for income taxes 39.6 34.1
Depreciation 14.9 14.0
Amortization 63.6 58.9
Change in estimated acquisition earnout payables 11.8 3.9
EBITDAC 208.0 176.8 17.7%
Gains from books of business sales (1.4) (2.2)
Acquisition integration (1) 2.9 14.2
Acquisition related adjustments 2.3 0.8
Workforce and lease termination related charges 3.9 1.6
Levelized foreign currency translation - (2.0)
EBITDAC, as adjusted$ 215.7
$ 189.2
14.0%
Net earnings margin, as reported using reported revenues on page 2 8.9% 8.0% +91 bpts
EBITDAC margin, as adjusted using adjusted revenues on page 2 24.6% 23.4% +121 bpts
(1) Acquisition integration costs consist mostly of IT system conversion costs, professional fees and compensation related to certain of our large acquisitions outside the scope of our usual tuck-in strategy.
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Arthur J.Gallagher & Co. published this content on 27 April 2017 and is solely responsible for the information contained herein.
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